Arizona Preserves Net Metering by Charging a Small Fee to Solar Owners

After two days of impassioned public comment on the future of net metering, the Arizona Corporation Commission voted 3-2 yesterday to charge $0.70 per kilowatt to solar owners to help offset utility revenue losses associated with the growth of rooftop solar.

Arizona regulators backed away from a change to net metering proposed by Arizona Public Service in favor of a compromise with the solar industry.

The settlement could set a national precedent for how to manage net metering, a crucial policy for the solar industry.

Solar proponents across the U.S. are fighting to preserve net metering, which pays system owners the retail electricity rate for the power their installations send to the grid. Utilities across the country are calling for reductions in the rate or adding bill charges that allow them to avoid shifting infrastructure costs to non-solar-owning customers.

Instituting the modest charge allowed the ACC to act now on behalf of non-solar-owning ratepayers. Four of the five commissioners did not want to defer concerns about the cost shift raised by Arizona Public Service, the state’s biggest electricity provider, to the next formal rate-setting process.

With the growth of leasing programs that allow building owners to acquire rooftop solar at little to no upfront cost and without ownership responsibilities, rooftop solar is booming and utilities’ lost revenues are becoming noticeable. APS had approximately 900 rooftop solar systems in June 2009 and over 18,000 in June 2013. It added 500 in October.

Asked if such charges would impede Arizona’s solar industry, Solar Energy Industries Association (SEIA) Counsel Court Rich said the leasing programs that have driven 80 percent to 90 percent of Arizona’s skyrocketing rooftop solar growth in recent years save solar customers about $5.00 to $10.00 per month. “You do the math,” he said.

The average rooftop solar installation in Arizona is around 6 kilowatts.

“A $0.70 per kilowatt charge will hamper the industry,” explained Sunrun VP and The Alliance for Solar Choice (TASC) President Bryan Miller. “We cannot sustain a $1.00 per kilowatt charge.”

The RUCO-engineered compromise holds the $0.70 per kilowatt bill charge constant until the next rate case, when hearings can determine more precisely the costs and benefits of rooftop solar to ratepayers.

“The cost shift is real and growing, and both staff and RUCO said so,” said APS VP Jeff Guldner, calling for commissioners to impose a higher bill charge. “At what point is the Commission’s role to prop up an industry, and when does it protect ratepayers?”

Commissioner Bob Stump chaired the hearing in an evenhanded manner and found common ground for the compromise. Commissioner Susan Bitter Smith initially called for postponing any decision until the next rate case, but ultimately supported the settlement. Commissioner Brenda Burns pushed for an automatic stepwise escalation of the bill charge and voted against the final version that did not include it.

Commissioner Gary Pierce also opposed the measure and instead supported the APS proposals. Commissioner Bob Burns led the drive for a compromise and, in casting a supporting vote, said the deal was good.

“Just like any negotiation, there was give and take,” said RUCO Executive Director Pat Quinn. “There are things in the settlement that will protect all utility customers.”

“What this says to the many states watching,” added RUCO consultant Lon Huber, “is that retail rates could under- or overcompensate and might not be the best proxy for value. To get to that, you have to balance the short-term costs that concern utilities and the long-term benefits of distributed solar.”

“Other states will pay attention to this decision,” added Solar City Policy and Electricity Market Director Meghan Nutting, “but they will also look to what solar means to them.”

Solar installations completed by December 31, 2013 were grandfathered into the agreement under current rules. Installations built after that will be grandfathered into the new rules that include the bill charge until the commission’s next rate case decisions

“The decision allows the industry to move forward without damaging ratepayers,” said Mark Holohan, AriSEIA President and solar installer. “But we are near the danger zone where more customers won’t see savings. It’s like asking how long a person can hold their breath underwater before they drown. Nobody wants to be the experiment.”

"There is a list of benefits that solar provides, including decreased line losses, the reduced need for new infrastructure, and the reduced need for utility capital expenditures. Only APS, which profits from more electricity sales, does not benefit from them,” said TASC counsel and former Tempe, AZ mayor Hugh Hallman. “I am saddened that APS won’t join the settlement. Utilities like APS are going through a process of creative destruction, and it is a real challenge.”